Your Guide to Binary Options

The root of the word binary is the prefix ‘bi-’, which means two. Here’s a layman’s explanation of binary options, a term associated with investment:

An investor buys binary options for the shares of a company for a specified strike price and a binary payoff. Based on how the stock is trading per share when it reaches its expiry date, there could be two results (hence the name).

If it trades above the strike price on the said date, then the investor gets the payoff amount. However, if it falls below the strike price, he/she does not receive anything. They are colloquially referred to as ‘all-or-nothing options’, and are also called fixed return options (FROs).

There are mainly four types of binary options. They are explained in detail below:

One touch binary options: If the currency or asset can be traded upon at a specific rate (called the trigger), a trader would earn a profit, which is also pre-determined. The trader isn’t in the dark about his earnings; he will get the payout amount only if the currency/asset reaches the trigger value. If it fails to do so, he will incur a loss.

No touch binary options: When a trader signs the contract, he undertakes that he would only claim a profit when the rate of the currency or asset he has traded upon reaches the trigger and within the time limit stipulated in the contract. He must keep in mind that if the trigger is higher, the currency/asset may not reach it, resulting in a loss.

Double one touch binary options: A trader can fix a couple of triggers for the currency or asset he wishes to trade upon. In the event of its rate reaching either of them, he makes a profit. One should make use of double one touch binary options only if he is optimistic about an upward trend in the market, but is not sure about the direction in which it will move.

Double no touch binary trading options: This is exactly the opposite of the double one touch binary trading options. The trader is not sure whether the rate of the currency or asset he has traded upon will reach either of the two triggers he’d fixed. Traders usually avail double no touch binary trading options when the market is unfavorable. This option becomes profitable when the market moves in the direction of consolidation.

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